U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2000
Commission file number: 0-29138
INTELLECTUAL TECHNOLOGY, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 84-1130227
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization )
1945 Camino Vida Roble, Suite O, Carlsbad, California 92008
(Address of principal executive offices)
(760) 929-9789
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes -X- No ---
As of May 1, 2000, 10,000,000 shares of common stock, par value $0.00001
per share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes --- No -X-
<PAGE>
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet, March 31, 2000 1
Statements of Operations and Accumulated Deficit
(Unaudited) for the three month periods ended
March 31, 2000 and 1999 2
Statements of Cash Flows (Unaudited) for the three
months ended March 31, 2000 and 1999 3
Notes to financial statements 4
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 5-6
PART II. OTHER INFORMATION 7
Signatures 8
<PAGE>
Intellectual Technology, Inc.
Balance Sheet
March 31, 2000
(unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 596,236
Certificate of deposit 113,232
Accounts receivable 736,486
Inventory 288,187
Deferred tax asset 10,000
Prepaid expenses 220,034
-------
Total current assets 1,964,175
Property & Equipment
Contract equipment 5,999,070
Equipment - non-contract, office, furniture and
improvements 53,275
---------
6,052,345
Less: Accumulated depreciation 4,970,510
---------
1,081,835
Other Assets
Patents and organization costs, net of
accumulated amortization 251,615
Deferred tax asset 56,700
Due from related party 37,212
Other non-current assets 56,759
Total assets $ 3,448,296
LIABILITIES AND STOCKHOLERS' EQUITY
Current Liabilities
Accounts payable $ 217,569
Income taxes payable 39,148
Accrued expenses 68,025
Notes payable 1,312,173
Due to related party 18,516
Accrued interest payable 7,624
Total current liabilities 1,663,055
Other Liabilities
Long-term debt, net of current portion 557,590
Due to related party - long term 143,308
700,898
Stockholders' Equity
Preferred stock, $0.00001 par value, 10,000,000
shares authorized, no shares issued or outstanding -
Common stock, $0.00001 par value, 20,000,000 shares
authorized, 10,000,000 shares issued and outstanding 100
Additional paid-in capital 1,186,250
Accumulated deficit (102,007)
1,084,343
Total liabilities and stockholders' equity $ 3,448,296
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
Intellectual Technology, Inc.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(unaudited)
For the three months
ended March 31,
----------------------
2000 1999
------------ -------------
REVENUES
Sales, net $ 1,942,360 $ 1,796,855
COST OF REVENUES
Depreciation and amortization 457,762 608,036
Material costs 348,658 252,495
Maintenance and other cost of sales 268,987 185,022
------------ -------------
Total cost of revenues 1,075,407 1,045,553
------------ -------------
Gross profit 866,953 751,302
OPERATING EXPENSES
Selling, general and administrative 301,907 281,640
Research and development 28,700 131,018
Depreciation and amortization 110,224 76,151
------------ -------------
Total operating expenses 440,831 488,809
------------ -------------
Income from operations 426,122 262,493
OTHER INCOME (EXPENSE)
Interest income 6,105 241
Interest expense (71,038) (205,213)
------------ -------------
Net income before income taxes 361,189 57,521
Income taxes (138,933) (5,759)
------------ -------------
NET INCOME 222,256 51,762
Accumulated deficit
Balance, beginning of period (324,263) (2,675,295)
------------ -------------
Balance, end of period $ (102,007) $ (2,623,533)
============ =============
INCOME PER SHARE - BASIC $ 0.02 $ 0.01
============ =============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 10,000,000 10,000,000
============ =============
The accompanying notes are an integral part of the financial statements.
2
Intellectual Technology, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months
ended March 31,
----------------------
2000 1999
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES $ 502,767 $ (187,237)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of non-contract equipment (1,067) (6,617)
Investment in contract costs and equipment (1,215) (355,045)
------------ -------------
Net cash used by
investing activities (2,282) (361,662)
CASH FLOWS FROM FINANCING ACTIVITES
New borrowings - 974,630
Debt repayments (409,972) (448,547)
Loan fees - (102,000)
------------ -------------
Net cash provided (used) by
financing activities (409,972) 424,083
------------ -------------
NET INCREASE (DECREASE) IN CASH 90,513 (124,816)
CASH AND CASH EQUIVALENTS,
beginning of period 505,723 184,757
------------ -------------
CASH AND CASH EQUIVALENTS,
end of period $ 596,236 $ 59,941
============ =============
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Intellectual Technology, Inc.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Management's representation of interim financial information
The accompanying financial statements have been prepared by Intellectual
Technology, Inc. without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted as
allowed by such rules and regulations, and management believes that the
disclosures are adequate to make the information presented not misleading.
These financial statements include all of the adjustments which, in the
opinion of management, as necessary to a fair presentation of financial
position and results of operations. All such adjustments are of a normal
and recurring nature. These financial statements should be read in
conjunction with the audited financial statements at December 31, 1999.
2. Significant post-quarter financing
In April 2000, the Company obtained a $100,000 line of credit at prime
plus 2%. Any borrowings under this agreement will become due in April 2001.
4
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in this report, including statements concerning
the Company's future cash and financing requirements, and other statements
contained herein regarding matters that are not historical facts, are forward
looking statements; actual results may differ materially from those
anticipated.
Plan of Operations
The Company designs, manufactures, and leases systems for the automated
preparation and dispensing of motor vehicle registration forms and license
plate decals.
Effective November 1, 1996, the Company commenced a lease contract with the
State of Indiana. Prior to that date, the Company was engaged principally in
research and development of its products and generated only limited operating
revenues. Subsequently, the Company has entered into contracts to supply
equipment and material to the State of Maryland, and has entered into a five
year contract with South Dakota.
Liquidity and Capital Resources
The following is a summary of the Company's cash flows from operating,
investing, and financing activities:
Three months ended March 31,
(rounded)
2000 1999
Operating Activities $ 503,000 $ (187,000)
Investing Activities (2,000) (362,000)
Financing Activities (410,000) 424,000
Net effect on cash $ 91,000 $ (125,000)
Cash flows provided by operations increased from $(187,000) in 1999
to $503,000, an increase of $690,000 due to (1) timing in the collection
of accounts receivable $866,000; (2) acceleration of payment of accounts
payable ($334,000); (3) reduction in inventory levels $223,000 and (4) other
items netting to a decrease in cash flows of ($65,000).
The Company is committed to spend another $460,000 by the end of the year
to complete installation of contract equipment. Under the Company's current
financing arrangement, receivables from all contracts have been assigned to
the note holder. The amount of monthly cash flow from the contracts is
remitted net to the Company after debt service is satisfied. Management
projects that this arrangement will continue to generate positive monthly
cash flows through at least the third quarter of 2000, and that such cash
flows will be sufficient to support operations and the Company's sales
effort for the coming year.
In April 2000, the Company obtained a $100,000 line of credit at prime
plus 2%. Any borrowings under this agreement will become due in April 2001.
5
<PAGE>
Results of Operations
For ease in presenting the financial data, figures have been rounded to
the nearest thousand.
For the three months ended March 31, 2000, contract revenues increased from
$1,797,000 to $1,942,000, an increase of 8%. The increase was directly
related to an additional state contract (7%), expiration of a contract(-4%)
and the additional number of transactions processed by ITI's equipment (5%).
Gross profit increased 9% from $751,000 (41.8% of sales) to $867,000 (44.6%
of sales) as a result of higher sales volume. The gross profit percentage
increased due to: (1) decreased contract depreciation due to certain soft
contract costs being amortized through a initial contract period that expired
in October 1999(10.2%); (2) higher maintenance costs due to aging equipment
and software changes, updates and enhancements (-5.1%); (3) reduction in
property taxes as a result of state legislation(1.1%); (4) rescission of
a royalty agreement(0.5%); and (5) higher material costs (-3.9%).
Operating expenses decreased 10% from $489,000 in 1999 to $441,000 in 1999,
a decrease of $48,000. Selling, general and administrative expenses increased
from $281,000 to $302,000, an increase of $21,000 primarily due to (1) Higher
general & administrative expenses ($11,000); (2) cost of living adjustments to
payroll and new hires ($51,000); and (3) decreased marketing expenses related
to efforts to obtain additional state contracts(-$41,000). Patent
amortization increased from $70,000 in 1999 to $108,000 in 2000 due to
revaluation in the remaining useful lives of the patents offset by a
rescission of patent purchase agreement. Research and development decreased
from $131,000 in 1999 to $29,000 in 2000 because: (1) the Company spent more
efforts in improving and adapting existing Company products to recent customer
needs; and (2) research and development efforts were taken over by existing
employees rather than subcontracting to outside vendors. The Company will
continue to engage in research and development of additional applications of
its products in related areas and new product development.
Interest expense decreased from $205,000 in 1999 to $71,000 in 2000,
reflecting the pay down of equipment financing. Interest expense on a patent
decreased by $80,000 due to the rescission of a patent purchase agreement.
6
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 3. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule, filed herewith electronically
(b) Reports on Form 8-K None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
INTELLECTUAL TECHNOLOGY, INC.
By: /S/ Craig Litchin
Acting Principal Financial Officer
Date: May 12, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENTS OF LOSS AND ACCUMULATED DEFICIT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 10QSB FOR THE QUARTER ENDED MARCH 31, 2000.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 596,236
<SECURITIES> 0
<RECEIVABLES> 736,486
<ALLOWANCES> 0
<INVENTORY> 288,187
<CURRENT-ASSETS> 1,964,175
<PP&E> 6,052,345
<DEPRECIATION> 4,970,510
<TOTAL-ASSETS> 3,448,296
<CURRENT-LIABILITIES> 1,663,055
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 1,084,243
<TOTAL-LIABILITY-AND-EQUITY> 3,448,296
<SALES> 1,942,360
<TOTAL-REVENUES> 1,942,360
<CGS> 1,075,407
<TOTAL-COSTS> 440,831
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,933
<INCOME-PRETAX> 361,189
<INCOME-TAX> 138,933
<INCOME-CONTINUING> 222,256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 222,256
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
